"What’s The Relationship Between Deductible Amount And Annual Premium?"
If you are willing and able to accept responsibility for a larger amount of a potential claim, the insurance company will reward you by decreasing your cost of insurance with a lower annual premium. The example below illustrates annual premium differentials based on the insureds willingness to accept deductible limits of $500, $1,000 & $2,500. The annual premiums are shown for each scenario, as well as the cost differential for increased deductible as they relate to the most expensive coverage:
By increasing your deductible from $500 to $2,500, you can reduce your annual premium by approximately 20%. This is considered substantial, particularly when you think of insurance as a way to prevent against catastrophic losses, as opposed to minor ones. It’s as though the insurance company is giving you $135 a year just to assume a bit more responsibility for an event that may never occur. Here are a few thoughts on how you might use the savings of $135:
- It could be enough to purchase an umbrella policy.
- It could be used to purchase a decreasing term insurance policy, designed to pay off your mortgage in the event of an untimely death.